In this project-centered course, Darden's Ron Wilcox and BCG's Thomas Kohler will walk you through a real-world case, from problem statement to detailed analyses. You'll use all three lenses (cost, customer value, and competition) to recommend an optimal price—and then adjust to market disruptions. Utilizing the concepts, tools and techniques taught in previous Specialization courses—from basic techniques of economics to knowledge of customer segments, willingness to pay, and customer decision making to analysis of market prices, share, and industry dynamics—you will practice setting profit maximizing prices to improve price realization. You'll finish the course with a portfolio-building project that demonstrates your pricing prowess.

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SK

Sep 01, 2017

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Excellent business and application oriented course

From the lesson

Retail Market Dynamics

Welcome to the course! We'll kick off the week with an overview of the project, which centers around Philips introduction of an eco-friendly light bulb. Once you've read the case, Thomas and Ron will guide you as you apply the cost lens to analyze the economics of the LED light bulb Philips has introduced to the market. After you've analyzed the economics of the case, Ron and Thomas will debrief to make sure you are on the right track. You will also hear from BCG pricing experts, who will share their lessons and tips gleaned from years of helping clients in multiple industries optimize their prices and improve the bottom line.

Jean Manuel Izaret

Ronald T. Wilcox

Thomas Kohler

Associate Director, Pricing

Transcript

All right everybody, these are the questions that Thomas put up on the light board. And we'd like to walk through these one by one, to really do the analysis so that you're comfortable and confident in your results. So, let's start with the superbulb. Why did it fail? We need to figure that out and a good place to start to figure that out is to figure out how much money Philips was making when they sold a superbulb. How much money the retailer was making when they sold a superbulb? So, let's start with the retailer. So, if I put the retailer up here. We know that the retailer was selling the bulb for 75 cents. It says so in the case. And it says even that price might have been too high. Now, we need to figure out what the retailer was buying the superbulb for. Essentially, what Phillip's price was to the retailer. Now, to do that we know the retailer was setting a 55% margin. So, if we take .75 and multiply it by 1-.55 this is margin calculation from the first course, right? The price times one minus the percent margin that will give us the cost. And if we do that calculation, what we get is .3375. So, that was the manufacturer’s price to the retailer. So, how much was the retailer making? We simply subtract those two numbers from each other and if we do that we get .4125. So, the retailer is definitely making some amount of money on the superbulb. Now, what about Philips? Were they making money on the superbulb? Well, here's what Philips was doing. Philips was selling it to the retailer for .3375. Now, where are we getting that number? Well, we just calculated that number, right? We just calculated it. And how much were they paying for it? Where they paying cost? Now, it states in the case what the cost is. It says it's four times what an incandescent bulb costs. So, if we subtract from that 4 times .088 and that's a case fact. That's a case fact that's in there. That tells us what the overall cost is. Well now, I think we can all look at this and see what is about to go on. This is .33 and 4 times that. It's going to get really close to that number shown here. As a matter of fact they will loosing and I bet you found this .01 for every bulb they're selling. So, that is a bad marketing situation to be in, a bad pricing situation. The more you sell, the more you lose, and that's why this bulb was pulled off the market. They were trying to create a new market, and they were losing a lot of money in the process.

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